Draft Automotive Mission Plan

Draft Automotive Mission Plan 2006-2016
Draft Automotive Mission Plan
2006-2016
Documentation of Inputs for

Ten Year Mission Plan
for
Development of the Indian Automotive
Industry into a Global Hub
September 2006
Ministry of Heavy Industries & Public Enterprises

Government of India
New Delhi
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Contents
S.No Chapter Page No.
Executive Summary 1
1 Auto Industry : A World Overview 3
2 Indian Automotive Industry : An Overview 5
3 The Automotive Mission Plan 11
4 Growth Trends in Automotive Industry 13
5 Recommended Interventions 24
6 Operational Recommendations 41
7 Working Groups Details 43
8 List of Abbreviations 44
2
Foreword
1. The Indian Automotive Industry started its new journey from 1991 with
delicensing of the sector and subsequent opening up for 100 percent FDI through
automatic route. Since then almost all the global majors have set up their facilities in
India taking the production of vehicle from 2 million in 1991 to 9.7 million in 2006.
2. The surge in number of people with higher purchasing power alongwith strong
growth in economy over a past few years has attracted the major auto manufacturers.
The market linked exchange rate and availability of trained manpower at competitive
cost has added to the attraction of Indian market. This increasing pull of Indian market
on one hand and the near stagnant rate of growth in auto sector in markets of USA, EU
and Japan have worked as a push factor for shifting of new capacities and capital in
the auto industry to India. The increasing competition in auto companies has not only
resulted in a spurt in choices of Indian consumers at competitive costs, it has also
ensured an improvement in productivity by almost 20 percent a year in auto industry,
taking it to one of the highest in Indian manufacturing sector.
3. To maintain this high rate of growth and to retain the attractiveness of Indian
market and for further enhancing the competitiveness of Indian companies the
Government through the Development Council on Automobile and Allied Industries
constituted a Task Force to draw a ten year Mission Plan for the Indian Automotive
Industry. The idea is to draw a futuristic plan of action with full participation of the
stakeholders and to implement it in mission mode to meet the challenges coming in the
way of growth of industry. Besides making concerted efforts for removal of obstacles in
the way of competition, the required infrastructure be put in place well in time to
alleviate its constraining impact on the growth. Through this Automotive Mission Plan,
government also wants to provide a level playing field to the players in the sector and
to lay a predictable future direction of growth to enable the manufacturers in making a
more informed investment decision.
4. The Ministry would like to place on record its appreciation for the work and
support of Chairman of the working groups for ably identifying the challenges and for
making valuable suggestions for intervention which will enable us in achieving the
goals envisaged in the Mission document. The government is of firm conviction that the
aspirations unfolded in the Mission document will be achieved and Indian Automotive
industry will attain the strength to meet the competition at world level and fare world
class. The report would be a useful blueprint to enable achieve the joint vision of the
Ministry and Indian Automotive Industry.
September 2006
Joint Secretary
Ministry of Heavy Industries and Public Enterprises
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EXECUTIVE SUMMARY
1. The Indian Automotive Industry after de-licensing in July, 1991 has grown at a
spectacular rate of 17% on an average for last few years. The industry has now
attained a turnover of Rs. 1,65,000 crores (34 billion USD) and an investment of
Rs. 50,000 crores. Over of Rs. 35,000 crores of investment is in pipeline. The industry
is providing direct and indirect employment to 1.31 crore people. It is also making a
contribution of 17% to the kitty of indirect taxes. The export in automotive sector has
grown on an average CAGR of 30% per year for the last five years. The export
earnings from this sector are 4.08 billion USD out of which the share of auto
component sector 1.8 billion USD.
2. Even with this rapid growth, the Indian Automotive Industry’s contribution in
global terms is very low. This is evident from the fact that even though passenger and
commercial vehicles have crossed the production figure of 1.5 million in the year 2005-
06, yet India’s share is about 2.37 percent of world production as the total number of
passenger and commercial vehicles being manufactured in the world is 66.46 million
against the installed capacity of 85 million units. Similarly, export constitutes only
about 0.3% of global trade.
3. It is a well accepted fact that the automotive industry is a volume driven industry
and a certain critical mass is a pre-requisite for attracting the much needed investment
in Research and Development and New Product Design and Development. R&D
investment is needed for innovations which is the life-line for achieving and retaining
the competitiveness in the industry. This competitiveness in turn depends on the
capacity and the speed of the industry to innovate and upgrade. No nation on its own
can make its industries competitive but it is the companies which make the industry
competitive. The most important indices of competitiveness are the productivity both of
labour and capital.
4. The concept of attaining competitiveness on the basis of cheap and abundant

labour, favourable exchange rates, low interest rates and concessional duty structure is
becoming outdated and not sustainable. In light of the above, it is felt that a greater
emphasis is required on the development of the factors which can ensure
competitiveness on a long-term basis. The automotive sector with its deep backward
(metals such as steel, aluminum, copper etc., plastics, paint, glass, electronics, capital
equipment, trucking warehousing and logistics) and forward (dealership retails, credit
and financing, logistics, advertising, repair and maintenance, petroleum products, gas
stations, insurance, service parts) linkages has been recognized and identified at
different fora ( Development Council of Automobile and Allied Industries, Planning
Commission, National Manufacturing Competitiveness Council and Investment
Commission) as a sector with a very high potential to increase the share of
manufacturing in GDP, exports and employment. The sector is also seen as a
multiplier of industrial growth. It helps in attaining two critical goals of the common
minimum programme, that of increasing manufacturing output and of providing
employment. Although indirectly, it also facilitates the third objective of increasing
agricultural productivity through farm mechanization and the needs of agricultural
produce transportation.
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5. The country with its rapidly growing middle class (450 million in 2007, NCAER
report), market oriented stable economy, availability of trained manpower at
competitive cost, fairly well-developed credit and financing facilities and local
availability of almost all the raw materials at a competitive cost has offered itself as one
of the favorite destination for investment to the auto makers. These advantages need
to be exploited in a manner to attain the twin objective of ensuring availability of best
quality product at lowest cost to the consumers on the one hand and developing and
assimilating the latest technology in the industry on the other hand. The Government
recognizes its role as a catalyst and facilitator to encourage the companies to move to
higher level of competitive performance. The Government wants to create a policy
environment to help companies gain competitive advantage. The government policies
target to encourage growth, promote domestic competition and stimulate innovation.
6. It is also felt that a general improvement in availability of trained manpower and

good infrastructure is required for the sustainable growth of the industry. But these
generalized efforts in development of the factors of production rarely produce
competitive advantage. Only advanced, specialized and industry-specific initiatives
can lead to competitive advantage. Keeping in view the above factors, the
Government has launched a unique initiative of NATRIP to provide a specialized facility
for Testing, Certification and Homologation to the industry. A similar initiative is
required for creating a specialized institution in automotive sector for education,
training and development, market analysis and formulation and dissemination of
courses in automotive sector through ITIs and ATIs.
7. The issues relating to fiscal incentives to the industry for R & D is under study
of Mashelkar Committee and the issues pertaining to duty structures is being examined
by the Hoda Committee. The concerns of the industry will be suitably presented in the
above fora.
8. It has been noticed that the Auto Industry has grown in clusters of inter-
connected companies which are linked by commonalities and complementarities. The
major clusters are in and around Manesar in North, Pune in West, Chennai in South,
Jamshedpur-Kolkata in East and Indore in Central India. The Department is
envisaging in the Eleventh Five-Year Plan period to create a National Level
Specialized Education and Training Institute for Automotive Sector and to enhance the
transportation, communication and export infrastructure facilities through concerned
Ministries in and around these clusters. The Government will make attempts to
eliminate all the barriers to local competition and organize the relevant Government
Departments and Educational and Research Institutions in and around the clusters.
9. The Automotive Mission Plan (AMP) aims at doubling the contribution of

automotive sector in GDP by taking the turnover to 145 USD in 2016 with special
emphasis on export of small cars, MUVs, two wheelers and auto components.
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1. Auto Industry: A World Overview
1.1 The production of passenger and commercial vehicles has reached a new
record of 66.46 million units in 2005. The growth in production has been as follows:
Year World Vehicle Percentage

Production(units in million) increase/decrease
1997 55.87
1998 53.20 (-) 4.77
1999 55.74 4.77
2000 58.33 4.64
2001 56.17 (-) 3.70
2002 58.45 4.05
2003 60.09 2.80
2004 64.16 6.77
2005 66.46 3.58
1.2 There has been an addition of 10.59 million vehicle production since 1997. A
majority of this growth is coming from the Asia – Pacific region (excluding Japan). The
production has nearly stagnated in Western Europe at 17 million, NAFTA at 16 million
and Japan at 10 million but it has more than doubled in Asia-Pacific region from 7.1
million in 1997 to 16 million in 2005.
1.3 Again a bulk of this increase in Asia- Pacific region has come from China where
production has trebled from 15.82 lakh units in 1997 to 46 lakh in 2005. The second
contributor to this growth is India where the production has doubled going up from 7.72
lakh units in 1997 to 15.76 lakh in 2005. The third contributor to this growth is Thailand
where it has increased from 3.60 lakh units in 1997 to 8 lakh units in 2005. It is
pertinent to note that the global installed capacity in the sector is around 80 million, so
still an idle capacity of about 15 million exists world wide.
1.4 The 12 global majors with 2 million units plus per year production capacity
account for 53.02 million of vehicle produced in 2005 against a total of 66.46 million,
which is almost 80 percent of the total production.
1.5 Global motorcycle production has increased from 30 million units in 2003 to 40
million units in 2005. Asia is the major producer of motorcycles in the world with 90%
share. Within Asia, China accounts for 17 million units whereas India is at second
position with 7.7 million units a year.
1.6 The industry being highly capital intensive, it offers huge entry barriers, so
these existing global majors themselves are realigning their production bases coming
closer to the scene of action which is in Asia- Pacific region mainly in China , India and
Thailand. Besides the above the constant pressure for cost reduction on OEMs is
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forcing them to outsource more and more components from Low Cost Countries. The
combined forces, as outlined above, have opened a floodgate of opportunities for
Indian Automotive Industry.
1.7 India, with its strength of a huge domestic market, rapidly growing purchasing
power, market linked exchange rate and well established financial market and
corporate governance laws, is working as an attractive destination for new investments
in this sector.
1.8 The rapid improvement in infrastructure including road, port, power and world
class facilities for Testing, Certification and Homologation, ensuring availability of
trained manpower and alignment of government policies with a view to promote fair
competition can make Indian Automotive Industry more competitive in world arena
besides making the country a favourable destination for investment by global majors in
auto industry.
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2. Indian Automotive Industry: An overview
2.1 Automotive Industry, globally, as well in India, is one of the key sectors of the
economy. Due to its deep forward and backward linkages with several key segments
of the economy, automotive industry has a strong multiplier effect and acts as one of
the drivers of economic growth. The well-developed Indian automotive industry
produces a wide variety of vehicles: passenger cars, light, medium and heavy
commercial vehicles, multi-utility vehicles such as jeeps, scooters, motor-cycles,
mopeds, three wheelers, tractors and other agricultural equipments etc. The sector
has tremendous potential for providing employment. This will increase the present
figure of employment in manufacturing sector which presently is quite low at 12% as
compared to the countries like Malaysia (50%); Korea (62%) and China (31%).
2.2 Installed capacity: The automobile industry, especially over a period of time,
and particularly after liberalization, has installed a robust capacity. The installed
capacity in different segments of automobile industry is as under:
Installed Capacity in Different Segments in nos.

S.No. Segment Installed Capacity
1. Four Wheelers 1,590,000
2. Two & Three Wheelers 7,950,000
Grand Total 9,540,000
2.3 The production of all categories of vehicles has grown at a rate of 16% per
annum over the last five years. The last 5 years production figures are as follows:
Production (in nos.)
Category 2001-02 2002-03 2003-04 2004-05 2005-06
Passenger 564052 608851 842437 960505 1045881
Car
Multi Utility 105667 114479 146103 249149 263032
Vehicles
Commercial 162508 203697 275224 350033 391078
Vehicles
Two 4271327 5076221 5624950 6526547 7600801
Wheelers
Three 212748 276719 340729 374414 434424
Wheelers
Total 5316302 6279967 7229443 8460648 9735216
Percentage 11.70% 18.60% 15.12% 16.80% 15.06%
growth
Source: SIAM
2.4 Export of Vehicles: Automotive industry of India is now finding increasing

recognition worldwide. While a beginning has been made in export of vehicles, the
potential in this area still remains to be fully tapped. Significantly, during the last two
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years the export in this sector has grown specifically in export of cars and two / three
wheelers. The table below indicates the performance during last six years.
Export (in nos.)
Category 2000-01 2001-02 2002-03 2003-04 2004-05 2005-06

Passenger Car 22990 50088 70828 126249 160677 170193
Multi Utility Vehicles 4122 3077 1177 3067 5736 5579
Commercial Vehicles 13770 11870 12255 17227 29949 40581
Two Wheelers 111138 104183 179682 264669 366724 513256
Three Wheelers 16263 15462 43366 68138 66801 76885
Total 168283 184680 307308 479350 629887 806494
Percentage 09.74 66.40 55.98 31.40 28.03
Source: SIAM
The automobile exports crossed USD 1 billion mark in 2003-04 and reached USD 2.28
billion in 2005-06.
Auto component Industry: An overview:
2.5 Indian auto component industry is quite comprehensive with around 500 firms
in the organised sector producing practically all parts and more than 10,000 firms in
small unorganised sector, in tierized format. The auto component sector has been one
of the fastest growing segments of auto industry, growing by over 28%, in nominal
terms between 1995 and 1998. The Industry also sustained a high growth rate and
could achieve growth of 24% in 2003, 16% in 2004-05 and 15% in 2005-06
(estimated). The industry, over the years, developed the capability of manufacturing all
components required to manufacture vehicles, which is evident from the high levels of
indigenization achieved in the vehicle industry as well as the components developed
for the completely Indian made vehicles like the Tata Indica, Tata Indigo, Mahindra
Scorpio, Bajaj Pulsar, TVS Victor and TVS star. The component industry has now
holistic capability to manufacture the entire range of auto-components e.g. Engine
parts, Drive, Transmission Parts, Suspension & Braking Parts, Electricals, Body and
Chassis Parts, Equipment etc. The component-wise share of production, as indicated
by the ACMA, is Engine parts-31%, Drive and Transmission Parts-19%, Suspension &
Braking Parts-12%, Electricals-9%, Body and Chassis Parts-12%, Equipment-10%.
2.6 Over the last few years the Indian Auto Component Industry has created a
robust capacity base and all of the world’s major manufacturers have set up their
manufacturing units in the country. The quality of the components produced by the
component industry in the country is certified by the fact that, out of the 498 ACMA
members, 9 are Deming Prize winners, 4 are JIPM award winners and 1 is Japan
Quality Medal winner.
2.7 Growth Trends: The turnover of auto component sector has grown from a figure
of USD 1.5 billion to USD 9.8 billion. Low labor costs, availability of skilled labor and
high quality consciousness among Indian vendors have spurred the growth of auto
component exports from India. During 2003-2004, the exports of auto-components
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crossed the magic figure of USD 1 billion after having posted a healthy growth of 25%.
During the year 2004-2005, the exports grew by 40% thereby taking the direct exports
of components to a level of USD 1.4 billion. As per ACMA, in the year 2005-06 exports
grew by 28% and reached the level of USD 1.8 billion. It is pertinent to mention here
that this figure is still very low against the volume of world trade of 185 billion USD in
auto components.
2.8 More than 60% of the exports of auto-components are to USA and Europe,
which constitute high AQL (Accepted Quality Level) countries. Moreover, over the last
5 years, the structure of the customer base in the global markets has also undergone a
major change. In the 1990s more than 80% of the exports were to the international
aftermarket. In 2005, more than 70% of the exports are to the global OEMs and Tier 1
companies and only 30% is to the aftermarket. This signifies that the Indian
component industry has now reached a high degree of maturity in terms of quality and
productivity and has also developed capabilities in the area of design and engineering,
which are critical requirements for being a part of the global supply chain.
2.9 Indian auto component manufacturing, currently constrained by lack of large

capacities, is slowly but steadily working on expanding capacities and automation
levels. As the users increasingly become discerning in their buying behavior, new
model introduction by the auto manufacturers has become the trend. Greater variety in
vehicle is offering challenges to the manufacturing capabilities and economies of scale
of component suppliers. Hence the component industry is constantly looking at
maintaining lean and efficient manufacturing systems. Having established themselves
in the domestic market, tapping opportunities abroad was a natural step for the auto
component manufacturers in their growth path. The Indian auto component industry is
targeting a bigger share of the export market and is in the process of ramping up its
manufacturing capabilities to meet the capacity and quality requirements. During 2004,
the auto component industry increased its investment by 17% while the automation
processes in this industry registered a growth of over 40%.
2.10 The Indian Tractor Industry: India is one of the largest manufacturers of
tractors in the world. The tractor industry touched a production of 2,48,000 units in
2004-05 and reached a level of 2,93,000 units in 2005-06. The government focus on
the agricultural economy, with increased rural lending ensuring availability of cheap
finance, led to this growth. The exports stood at 20,000 units in 2004-05 and 28,000 in
2005-06. Indian market is dominated by 31-40 HP tractors followed by 41-50 HP. The
tractor industry has 14 players, including three MNCs, and is led by Mahindra &
Mahindra Ltd. The industry is growing at the rate of 5% to 6% a year. The demand for
tractors is likely to be driven by thrust on increase in area under irrigation, increased
rural connectivity, and enhanced farm credit facilities.
2.11 The Indian Tyre Industry: India is one of the few countries which has
attained self-sufficiency in tyre production barring the production of some types of
vehicles tyres, air-craft tyres, and snow tyres. India has constantly been exporting the
tyres to almost 65 countries. The total installed capacity is 850 lakh units against
which 650 lakh units were produced in the year 2005-06 of which 620 lakh units were
consumed domestically. In tonnage terms the production in the year 2005-06 was
11.17 lakh metric. tons. The industry is expected to grow at an average rate of 7% per
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annum during Eleventh Five-Year Plan period. The total turnover of the tyre industry is
Rs. 13,500 crores out of which tyres worth Rs. 2300 cores were exported in the year
2005-06.
2.12 Major Challenges:
2.12.1 Sustaining the growth rate: There is a potential for much higher growth in the
domestic market due to the fact that the current car penetration level in India is just 7
cars per thousand. The increase in purchasing power at the top echelon of about 300
million people in the country, where the per capita income is over USD 1000, implies
that passenger car growth in the domestic market is on the verge of a major and
sustained boom. It is expected that the passenger car market which was 1 million in
2003-2004 can easily cross the 3 million mark by 2015. This can lead to an increase in
the size of the domestic auto-component market from the current level of USD 9.8
billion (2005-06) to at least USD 15 billion by 2015.
2.12.2 Need for innovation: The competitiveness in the sector will largely depend on
the capacity of the industries to innovate and upgrade. The industry will also benefit if
it has strong domestic competition, home based suppliers and demanding local
customers. There is no denying the fact that the factors like labour cost, duties,
interest rate and economies of scale are the most important determinants of
competitiveness. But productivity is the prime determinant of the competitiveness and
also impacts the national per capita income. The globally successful OEMs and auto
makers will ultimately make their base in places which are high on productivity factor
and where essential competitive advantages of the enterprise can be created and
sustained. It would also involve core products and process technology creation apart
from maintaining productive human resource and reward for advanced skills. The
OEMs also look for the policies of the state which stimulates innovations in new
technologies.
2.12.3 Enhancement of share of auto component in global trade: The global auto
component industry is estimated to be USD 1.2 trillion in value and is likely to increase
to USD 1.7 trillion by 2015 as per ACMA. Sourcing from low cost countries is likely to
increase from USD 65 billion in 2002 to USD 375 billion by 2015. Although India’s
exports are still small (USD 1.8 Billion in 2005-06), it could leverage this off shoring
trend and the quality of its supply base to build dominant top two position in auto
component exports from low cost countries by 2015. A position in the top two would
enable India to achieve export of USD 20-25 billion by 2015. This would increase
India’s share of world auto component trade from 0.9 percent in 2005-06 (Provisional)
to 2.0-2.5 percent by 2015, inclusive of domestic consumption. Such a high growth in
the Auto component Sector is expected to lead to an additional 750,000 direct jobs in
its sector alongwith indirect employment of 1.8 million people over the next 10 years. In
addition to creating incremental employment of about 2.5 million people in direct and
indirect jobs, it is also expected to result in an incremental revenue of USD 3.8 billion to
the exchequer. Investments in this sector would also grow by USD 15 billion from the
current level of USD 3.1 billion.
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2.13 Recent initiatives of the Government
2.13.1 In order to give a boost to the growth in this sector, the Government has taken
several initiatives. Some of them are as under.
(i) The Finance Bill 2006 has given a further boost to the Automotive Industry
by reduction of the excise duty on the small motor vehicles, the reduction in the
duty for raw material which is now between 5 to 7.5% as compared to the
previous level of 10%, and the thrust on infrastructure development.
(ii) As a result of constant persuasion by the Department of Heavy Industry,

some of the objectives like imposition of excise duty on body building activity of
Commercial Vehicles, lower excise duty on the small cars, extension of 150%
weighted deduction on R&D expenditure to the automotive sector, increased
budgetary allocation for R&D activities in the sector and moving towards a
lower duty regime have been achieved and steps are being taken to further
strengthen the capability of the sector.
(iii) National Automotive Testing and R&D Infrastructure Project (NATRIP):

The most critical intervention of the Government thus far in the automotive
sector has come in the form of an ambitious project on setting up world-class
automotive testing and R&D infrastructure in the country to deepen
manufacturing, encourage localized R&D, boost exports, converge India’s
unparalleled strengths in IT and electronics with automotive engineering sectors
to firmly place India in USD 6 trillion global automotive business. NATRIP aims
at facilitating introduction of world-class automotive safety, emission and
performance standards in India and also to ensure seamless integration of
Indian automotive industry with the global industry. The project aims at
addressing one of the most critical handicaps in the overall growth of
automotive industry today, i.e. major shortfall of testing and pre-competitive
common R&D infrastructure. National Automotive Testing and R&D
Infrastructure Project envisages setting up of the following facilities:-
(a) A full-fledged testing, certification and homologation centre within the

northern hub of automotive industry at Manesar in the State of Haryana;
(b) A full-fledged testing, certification and homologation centre within the
southern hub of automotive industry at a location near Chennai in the
State of Tamil Nadu;
(c) Up-gradation of existing testing, certification and homologation facilities
at Automotive Research Association of India (ARAI), Pune and at
Vehicle Research and Development Establishment (VRDE),
Ahmednagar;
(d) World-class proving grounds or testing tracks on around 4,000 acres of
land at Pithampur in Madhya Pradesh;
(e) National Centre for Testing of Tractors and Off-Road Vehicles together
with national facility for accident data analysis and specialized driving
training at Rae Bareilly in the State of Uttar Pradesh; and
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(f) National Specialized Hill Area Driving Training Centre as also Regional
In-Use vehicle management Centre at Dholchora (Silchar) in the State
of Assam.
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3. The Automotive Mission Plan:
3.1 The necessity of this Mission Plan arises in the background of a newfound
strength and resurgence in the Indian manufacturing sector. For most of the decade of
the 1990s, post the economic deregulation in 1991, growth in the Indian economy has
been led by growth in the service sector, a growth that has overshadowed the growth
in the manufacturing sector. In the past few years, several industries in the Indian
manufacturing sector have become internationally competitive and have acquired a
new energy to grow. Several industries, including the automotive industry, genuinely
believe that they can become world-beaters.
3.2 In developing a Mission Plan for India’s automotive sector, answer to the
following questions has been sought:
(i) Where is automotive sector in India today? What linkages does the
automotive sector have with other facets of the India’s economy?
(ii) What do we want the automotive sector of India to look like in 2016? In
other words, what is the potential of the automotive sector to grow along all
segments of its value chain, and what can be the maximum positive impact
on the stakeholders?
(iii) How do we attain the vision? What policy interventions will facilitate the
attainment of this potential?
3.3 Vision for the Future: The opportunity landscape for the Indian auto industry
would encompass manufacture of vehicles and components for domestic sales,
manufacture for exports (both vehicles and components), and export of services in
areas such as design, engineering, and back office operations. It is estimated that the
total turnover of the automotive industry in India would be in the order of USD 122-159
billion in 2016 (a substantial increase from the size of USD 34 billion in 2006).
3.4 It is expected that in real terms, India would continue to enjoy its eminent
position of being the largest tractor and three wheeler manufacturer in the world and
the world’s second largest two wheeler manufacturer. By 2016, India would emerge as
the world’s seventh largest car producer (as compared to the eleventh largest
currently) and retain 4th largest position in world truck manufacturing sector. Further, by
2016, the automotive sector would double its contribution to the country’s GDP from
current levels of 5% to 10%. Its contribution to the manufacturing sector would rise to
30-35% from the current level of 17%. This is because the share of manufacturing in
GDP is expected to go up to around 35% from current level of 17% by 2016.
3.5 Implementing AMP 2006-2016 would need an incremental investment in the

order of USD 35-40 billion to come into Indian auto industry over the next ten years
(2006-2016). It is anticipated that the bulk of this investment will come from expansion
of capacities by existing manufacturers operating in India and remaining from global
multinational corporations (MNCs) seeking to make India their manufacturing base.
Competition for attracting investments in India would come from countries such as
China and Thailand.
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3.6 Currently the automotive industry employs 200,000 persons in vehicle

manufacturing, 250,000 in component companies and 10 million at different levels of
the value chain – both through backward and forward linkages. The expected growth in
investments and output of India’s automotive sector during the next 10 years will create
further employment opportunities in the country. Additional 25 million jobs are likely to
be created by way of both direct and indirect employment in automotive companies
and in other parts of the vehicle value chain such as servicing, repairs, sales and
distribution chains.
3.7 Vision Statement: Based on the above scenario, the Vision Statement for
India’s automotive sector will be as follows:
“To emerge as the destination of choice in Asia for the design and manufacture
of automobiles and automotive components. The output of India’s automotive
sector will be USD 145 billion, contributing to more than 10% of India’s Gross
Domestic Product and providing employment to 25 million persons additionally
by 2016”.
3.8 The Way Forward: The future challenges for the Indian automobile industry in
achieving the targets defined in the Automotive Mission Plan would primarily consist of
developing a supply base in terms of technical and human capabilities, achieving
economies of scale and lowering manufacturing costs, overcoming infrastructural
bottlenecks, while at the same time stimulating domestic demand and exploiting export
and international business opportunities.
3.9 Interventions envisaged are required at two levels – Industry and the
Government. The Government would play a key enabling role in facilitating
infrastructure creation, promote the country’s capabilities, create a favourable and
predictable business environment, attract investments and promote R&D. The role of
Industry will primarily be in designing and manufacturing products of world-class quality
standards, cost competitiveness, improving productivity of both labour and capital,
achieving scale and R & D capabilities and showcasing India’s products in potential
markets. Attaining Vision 2016 for the automotive sector in India is a goal for both
Government and Industry definitely worth striving for.
3.10 The path of implementation of the Vision 2016 calls for some decisive action on
part of state and central Governments. The challenges for industry essentially call for a
matching vision and action to attain global standards in operational efficiency. Given
the commitment of the Government of India, and the fundamental competitiveness of
the Indian automotive industry, achieving the targets defined in the Mission Plan is a
doable challenge and would be rewarding for all stakeholders.
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Automotive Mission Plan 2006 - 2016
Growth Trends in Automotive Industry
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4 Evolution of Indian Automotive Industry
4.1 Automobiles: While the genesis of Indian Automotive Industry can be traced to
the 1940s, distinct growth decades started in the 1970s.
Between 1970 and 1984 cars were considered a luxury product; manufacturing
was licensed, expansion was restricted; there were quantitative restriction (QR) on
imports and a tariff structure designed to restrict the market. The market was
dominated by six manufacturers - Telco (now Tata Motors), Ashok Leyland, Mahindra
& Mahindra, Hindustan Motors, Premier Automobiles and Bajaj Auto.
The decade of 1985 to 1995 saw the entry of Maruti Udyog in the passenger
car segment and Japanese manufacturers in the two wheelers and light commercial
vehicle segments. Economic liberalization, started in 1991, led to the delicensing of the
passenger car segment in 1993. QR on imports continued. This decade witnessed the
emergence of Hero Honda as a major player in the two wheeler segment and Maruti
Udyog as the market leader in the passenger car segment.
Between 1995 and 2000 several international players entered the market.
Advanced technology was introduced to meet competitive pressures, and
environmental and safety imperatives. Automobile companies started investing in
service network to support maintenance of on-road vehicles. Auto financing started
emerging as an important driver for demand.
Starting in 2000, several landmark policy changes like removal of quantitative

restrictions (QR) and 100 percent FDI through automatic route were introduced.
Indigenously developed (Made in India) Vehicles were introduced in the domestic
market and exports were given a thrust. Auto companies started collaboration with
financial firms to provide auto financing and insurance services to customers.
Manufacturers also introduced systems to improve capacity utilization and adopted
quality and environmental management systems. In 2003, Core-group on Automotive
R&D (C.A.R.) was set up to identify priority areas for automotive R&D in India.
4.2 Auto Components: In 1953, the Tariff Commission in its report to Government
had stressed the need for a balanced and integrated development of the Automotive
Industry by promoting the emergence of a strong auto-component sector. As a result of
this recommendation the leading entrepreneurs were invited by Government to
establish an auto-component manufacturing industry.
In the pre-1985 era, the auto component sector was a protected market with
high import tariffs. The market was oriented primarily towards supply of components to
domestic manufacturers.
In the 1980s, encouraged by the establishment of many Japanese OEMs in the

passenger car, two-wheeler and LCV industry in the country, a number of Indian
companies entered into joint ventures with Japanese companies and exports also
commenced.
17
The Phased Manufacturing Programme (PMP) introduced in Indian automotive

sector in the 1980s for localization had laid the foundation for the development of auto
component industry. This programme enabled the auto-component industry to
modernize its technology, improve quality and to imbibe good manufacturing and shop-
floor practices and to transform itself into a highly capable sector of the industry, while
at the same time contribute to localizing the component base. In 1990s global OEMs
and Tier 1 suppliers started operations in India. This paved the way for a large number
of new Joint Ventures in the component industry with European and American
component manufacturers and gave the Indian component industry an all-round
expertise to manufacture components for applications in Japanese, European as well
as American vehicles. After the PMP programme came to an end in 1991, Government
introduced the MOU system that continued to place emphasis on the aspect of
localization of components. With support from this policy, the component industry
developed further capability to manufacture the new breed of auto-components
required for the new generation vehicles.
As a result of successful localization of these components, Vehicle

manufacturers started outsourcing more and more components rather than
manufacturing in-house. Entrepreneurs were encouraged to develop components and
set up facilities. Whenever required, OEMs supported component manufacturers
through equity participation, technical collaboration, etc.
Currently the Auto component Industry manufactures a wide range of products

in India for both domestic consumption and exports. The total size of the component
industry is close to USD 14 billion out of which USD 9.6 billion is the domestic OEM
market, USD 2.6 billion is the domestic aftermarket and USD 1.8 billion are the direct
exports of components.
More than 60% of the exports of auto-components are to Europe and USA.
More than 70% of the exports go to the OEMs and Tier 1s and only 30% to the global
aftermarket, indicating the high level of maturity in Quality and Technology that has
been achieved by the component industry.
Currently the Auto component Industry manufactures a wide range of products

in India for both domestic consumption and exports.
4.3 Size of the Indian Automotive Industry
4.3.1 The Indian Automobile Industry produced 8.5 million vehicles in 2004-05
amounting to around USD 25 billion. During the financial year 2005-06, Indian
Automobile Industry produced more than 9.7 million vehicles amounting to almost USD
28 billion. The growth in production was 15%. India is the second largest market for
two wheelers in the world. However, in value terms, the value of the market for
passenger cars and CVs is higher than the market size for two wheelers.
4.3.2 Sales of passenger cars and utility vehicles have grown at 12% CAGR over the
last decade. However, last year the growth rate for the passenger car segment was
18
lower than 8%. Sales of passenger cars post 2000 have been driven by increase in the
number of available models, purchasing power, especially of the middle class, easy
availability of car finance, conducive government policies and growth of used car
market. Further reduction in cost of ownership would fuel demand for passenger
vehicles.
4.3.3 Commercial vehicles sales have grown at a 4.4% CAGR over the last decade
and the segment has also demonstrated cyclical trends. Last year, however, growth
was over 10% in domestic sales and production. Exports have also picked up –
registering a growth of 36% over the last year. Growth in the commercial vehicle sector
is dependent on the general economic trend, development of infrastructure projects,
transport economics and availability of freight, replacement period of vehicles, easy
availability of credit and conducive government policies.
4.3.4 The Utility Vehicles had reached a production of 1,82,000 units in 2004-05 and
has gone upto 1,96,000 units in 2005-06. The tractors production has reached a figure
of 293,000 in 2006.
4.3.5 Two wheelers sales have grown at 11% CAGR during the last decade. Over the
years, while the sales of motorcycles have increased, sales of scooters and moped
have stagnated. With 5.82 million units sold in 2005-2006 (out of 7 million two
wheelers), motorcycles have replaced scooters as the preferred mode of transport with
higher load bearing capacity (essential feature for rural areas), better fuel efficiency,
better aesthetics thus resulting in a change in consumer preference/ behaviour. Last
year for the first time two wheeler sales crossed 7 million units registering a growth of
around 14%. Also, exports of two wheelers crossed half a million registering a growth
rate of 40%.
4.3.5 Three wheelers have also exhibited strong growth with a CAGR of 9%. Sale of
three wheelers has grown from 145,000 units in 1995 -1996 to over 360,000 in 2005-
06. Last year growth in three wheeler sales was around 17%.
4.3.6 Today, the Indian auto component sector has over 500 organised players and
about 5000 unorganised sector players. The organised sector reached a turnover of
over USD 10 billion in 2005-06. Demand from OEMs account for 54% of sales,
replacement market accounts for 30%, while exports account for over 16% at about
USD 1.8 billion.
4.4 Growth Drivers
4.4.1 Rising per capita Income and the changing demographic distribution are
conducive for growth. India has the highest proportion of population below 35 years,
70%, (potential buyers), which means that 130 million people will get added to the
working population between 2003 and 2009. The trends indicate that small and
medium cars would remain dominant and a shift towards high end cars is expected at a
faster rate. The SUV market is expected to develop rapidly in future. Higher disposable
incomes coupled with availability of easy finance options have driven the Passenger
vehicle segment.
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4.4.2 In the commercial vehicle segment, increased investment in road infrastructure

and availability of cheaper finance has led to a growth in multi-axle vehicles. This is
expected to be followed by a shift to tractor-trailer combinations on account of
operating economics of higher power-to-weight ratio vehicles. Growth in the demand
for pick-up trucks has coincided with the growth in multi-axle vehicles. The next growth
driver for LCVs is expected to be the introduction of lighter pick-ups.
4.4.3 The two wheeler segment growth is led by rapid urbanization and resultant rise
in demand from semi-urban and rural areas, increasing income levels, wider product
range available to customers, and easy finance options.
4.4.4 The growth in tractor industry is linked with the growth in agricultural output and
exports to neighboring countries.
4.4.5 Auto component industry growth is directly linked to the growth of automobile
industry since more than 50% sales is to the OEMs. However, in recent years,
component exports are becoming an important growth driver and it is expected to
assume greater importance in future.
4.5 Export Trends
4.5.1 Compared to domestic sales, vehicle exports have grown at the rate of 39%
CAGR over the last five years, led by exports of passenger cars at 57% and two
wheeler exports at 35%. Last year however, overall exports registered a growth of
around 28%. In value terms exports crossed USD 2 billion. The key destinations are
the SAARC countries, European Union (Germany, UK, Belgium, the Netherlands and
Italy), Middle East and North America. Maruti Udyog, Tata Motors and Hyundai Motor
India are key exporters for passenger cars; Mahindra & Mahindra and Tata Motors for
light commercial vehicles, medium and heavy commercial vehicles, Mahindra &
Mahindra for MUVs, Bajaj Auto for two and three wheelers and Mahindra & Mahindra
and TAFE for tractors. A 3% growth in global demand is anticipated over the next five
years and it will be led by Asia (mainly by China, India and ASEAN). Also global auto
companies are increasingly sourcing components and vehicles from low cost countries.
The outsourcing pie is slowly extending to services like engineering design and other
business processes. India is well positioned to take advantage of the outsourcing
opportunities.
4.6 Growth potential of Indian Automotive Industry
4.6.1 Automotive Industry offers huge growth potential in terms of sales volume
(including exports) and also immense employment opportunities. The likely future
volumes of different vehicle categories were estimated on the basis of projections
made by iMaCS, NCAER and AT Kearney. Value of projected domestic output was
computed based on historical average vehicle prices. Export potential was estimated
on the basis of current trends and possible opportunities in major export destinations.
Demand for after-market auto components and export output was also included in
computing growth potential of the industry. The unit value of different vehicle
20
categories in 2016 have been estimated keeping in view the need for compliance with
emissions and crash standards.
4.6.2 It is expected that the world production of Auto-Components would reach USD
1.7 Trillion by 2015. About USD 700 billion worth of auto-components shall be sourced
out from low cost countries (LCCs) by 2016. If India targets to get a 10% share of this
potential, it would mean USD 70 billion, nearly five times current total size of the
industry in India. However, this Mission Document has set a modest target of USD 25
billion by 2016 for export of auto components.
4.6.3 The projected size in 2016 of the Indian automotive industry varies between
USD 122 billion and USD 159 billion including USD 35 billion exports. This translates
into a contribution of 10-11% to India’s GDP by 2016, that is, double the current
contribution. This would mean a domestic vehicle market of USD 82 billion to USD 119
billion by 2016, USD 12 billion exports of vehicles and tractors, USD 20-25 billion
component exports and more than USD 5 billion after market of components. Another
USD 2 – 2.5 billion in engineering services outsourcing opportunity is expected to
develop. The total size of the auto component industry in India is expected to become
USD 40-45 billion by 2016. This calls for a major focus and policy initiative to market
India as an attractive “Manufacturing Destination”.
4.6.4 The output estimated would require incremental investment of USD 35-40
billion (Rs 160,000 -180,000 crores) by 2016.
4.6.5 The automotive industry also promises significant employment opportunities.

Large number of workers, both skilled and unskilled, will be required to sustain
increased level of production. A large part of the employment would also be indirect, for
sales, finance, insurance, mechanics and other after-sales personnel for both semi-
skilled and unskilled workers in rural and semi-urban areas. While direct employment is
by way of workers engaged in the production of automobiles and auto components,
indirect employment is generated in feeder and supplier industries to the automotive
industry, such as the vehicle financing and insurance industry, vehicle repair, service
and maintenance outfits, automobile and auto component dealers and retailers, vehicle
21
drivers, tyre industry, amongst others. It is estimated that, on a conservative basis, 5.3,
13.3, 0.5 and 3.9 units of direct and indirect employment are generated per unit of car,
CV, 2-wheeler and 3-wheeler produced respectively. This translates into an additional
employment generation of 25 million by the automobile industry by 2016.
4.6.6 Specialists in the areas of R&D, technology, product development, logistics and
operations would also be required. Availability of such requirements will not only be an
opportunity, but getting adequately trained personnel will become a major challenge.
4.7 Areas to Focus
The future challenge for Indian automobile industry would be to develop a

supply base with emphasis on lower costs and economies of scale, develop technical
and human capabilities, overcome infrastructural bottlenecks, stimulate domestic
demand and exploit export and international business opportunities. The key to
success is to achieve the critical mass that would make India competitive and profitable
for sustained investments. Keeping these in view the identified challenges and
interventions are in the areas of competitiveness in manufacturing and technology;
demand, brand building and infrastructure; export and international business;
environmental and safety standards, and human resources development. A key
deficiency that needs to be addressed for attaining the vision is to improve
competitiveness in manufacturing. Systemic deficiencies could be overcome through a
long-term and stable policy regime that will support the industry to fulfill its’ potential.
4.8 Competitiveness in manufacturing
4.8.1 The share of manufacturing sector (within the Industry sector) has shown only a
marginal improvement from 16.6% in 1991 to 17% of Indian GDP 2003. In comparison,
in some East Asian economies the share of manufacturing has ranged from 25% to
35% of their GDP. It is known that stagnation of manufacturing as a proportion of GDP
has adverse impact on employment generation. Therefore it is imperative to boost
manufacturing given the huge anticipated increase in the workforce over the next 15
years.
4.8.2 As observed by the National Manufacturing Competitiveness Council in its

national manufacturing strategy the challenges faced by Indian manufacturers raise
important questions for both Industry and Government “….this calls for ‘breakthrough’
and bold thinking on the part of all stakeholders. Only bold aspirations can enable India
benefit from emerging opportunities in the manufacturing sector”.
4.8.3 In a Global Competitiveness survey of 104 countries India was ranked only 55.
In terms of macroeconomic environment, public institutions and technology, India was
ranked 52, 53 and 63 respectively. On location attractiveness for manufacturing, India
was ranked 43 while other regional countries like China, Singapore and Hong Kong
were ranked 39, 11 and 6 respectively. The productivity in automotive industry in India
is substantially higher than other sectors and it has a huge potential for further
improvement, which in turn will pull up the competitiveness of entire manufacturing
sector. Hence it becomes imperative to identify factors that make manufacturing in
India un-competitive and address these and improve our competitiveness.
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4.8.4 The National Manufacturing Competitiveness Commission’s National

Manufacturing Strategy lists the following factors impacting manufacturing
competitiveness:
(i) Higher import duties including inverted duty structure
(ii) Higher incidence of indirect taxes
(iii) Sub-optimal levels of operations
(iv) Lower operational efficiencies and Higher transaction costs
(v) Lower labour productivity and Higher cost of capital
(vi) Inadequate infrastructure
4.8.5 In a survey of corporates, the following factors were ranked on the basis of the
responses:
(i) Flexibility in labour laws
(ii) Scale of operations
(iii) Cost of capital
(iv) Cost, availability and quality of raw materials
(v) Technology gap with international levels
(vi) Power costs
(vii) Cost of compliance to government regulations
(viii) Quality of transport infrastructure
4.8.6 The key factors that contribute to competitiveness of a country or a location can
be summarized as shown in the figure below. Figure on Key factors for
Competitiveness is as follows:
L a b o u r P r o d u c tiv ity / C o s t
E f f ic ie n c y
K ey F a cto rs f a c to r L a b o u r F le x ib ility
C a p ita l e f f ic ie n c y / o th e r
p r o d u c tio n f a c to r s
Q u a lity M a n p o w e r
R eso u rce
A v a ila b ility I n f r a s tr u c tu r e
R a w M a te ria ls
E c o n o m ic P o lic ie s &
A b ility to S ta b ility
a ttr a c t
In v estm en t In c e n tiv e s
D o m e s tic / E x p o r ts
P r o x im ity to
M a r k e ts
A u to c lu s te r s
Source: iMaCS Limited
The availability of low cost quality manpower and presence of a sizeable auto
industry, availability of raw material, and stable economy contribute to India’s
strengths.
4.8.7 But manufacturing in India suffers from disadvantages as was stated earlier. As
a result, auto sector in India is less competitive as compared to competing countries
like China and Thailand.
4.8.8 In a study commissioned by SIAM, ICRA Advisory Services evaluated the

Indian and Chinese economies from an automotive manufacturing perspective. The
23
following policy initiatives from the Chinese Government have been identified as driving
its manufacturing and investment leading to stupendous growth:
(i) Creating world class physical infrastructure – road networks, ports,

railways and airports
(ii) Government responsiveness to business needs (administration that
facilitates business)
(iii) Reduction and simplification of direct and indirect taxes
(iv) Lowered rate of income tax
(v) 17% uniform VAT, ensuring no cascading taxes or duties
(vi) Ensuring no location based tax exemptions and barriers to inter-state
movement of goods
(vii) Creating flexible and investor friendly labour laws
(viii) Companies can retrench labour and pay productivity-based wages
(ix) No trade unions in SEZs
(x) Employers can prolong work hours due to needs of production or
business but work time to be prolonged should not exceed 36 hours a
month.
(xi) Low interest rates
(xii) Availability of reliable and quality power; no need to invest in DG sets
(xiii) Large capacity additions annually that keep pace with growth
(xiv) Requirement of minimum investment in industry and R&D.
4.8.9 A cost comparison study between Indian and Chinese automotive

manufacturing companies to identify factors and their magnitude that impact auto
manufacturing in India vis-à-vis auto manufacturing in China reveals that the cost of
manufacture of a passenger vehicle in China is 23% lower than in India with the
principal difference owing to higher taxes and their cascading impact in India. Higher
labour productivity and lower infrastructural costs makes China more competitive. The
study also revealed that since design and engineering capabilities in India have not
been as strong there would be a disadvantage of 30% higher costs for products
manufactured in India. While some of the above issues like scale of operations and
labour productivity are industry or company related, others are identified for
improvement and strengthening by the Government.
4.9 Prescriptions for Industry in the National Manufacturing strategy
The National Manufacturing Strategy has indicated that Industry would not only
need to think big in terms of scale but also need to:
(i) Invest in R&D and technology
(ii) Have a continuing commitment for skills development and education
(iii) Benchmark their performance against best in the industry
(iv) Adopt best manufacturing practices and production techniques
(v) Deliver on globally acceptable quality levels
4.9.2 In light of the above scenario and goal of making India a hub for small cars,
MUVs, two wheelers, tractors and components, it becomes essential to focus on the
automotive sector and develop a policy specific to the sector which addresses all the
constraints. Investment in R&D for technology development will become one of the
24
most important aspects of future strength of this industry. Given India’s strength in
having the skill sets required to promote technological development, the industry needs
to invest in research and development to increase innovative breakthroughs for vehicle
design as well as in manufacturing technology and incentivisation of such investments
will be needed on the part of the Government.
4.10 Demand creation, brand building and infrastructure
4.10.1 In order to raise the contribution of automotive industry to GDP from 4.4% to
10%, there has to be a focus both on the domestic market as well as exports.
Domestically the focus should be on developing and selling appropriate products for
the large population of the country. These products could include cost effective small
carriers, strong, rugged, low cost vehicle for the rural market, USD 300-350 motorbikes
and small, safe four wheelers for family transport. For exports, the focus should be on
new geographies for growth beyond traditional markets.
4.10.2 India’s GDP is expected to grow from USD 650 billion to USD 950 billion in
2010 and USD 1390 billion in 2016. Automotive industry’s contribution in these years
is expected to rise from USD 34 billion to USD 69 billion and to USD 145 billion
respectively. These translate into a contribution to GDP to grow from the current 5.2%
to 7.2% and 10.4% in 2010 and 2015. Secondly, the challenge lies in developing
appropriate infrastructure to sustain this growth. Also, important would be to establish
brand image not only in the domestic market but internationally also. An appropriate
policy for attracting investment would ensure realization of the potential. Government is
aiming for creating suitable stable, predictable, and sustainable policy environment and
partnering with industry to look beyond borders.
4.11 International Business (Exports)
Export opportunities for four wheelers would lie primarily in the small car
segment as Indian companies have gained expertise in manufacturing vehicles in this
segment and enjoy an advantage over other low cost countries. India should capitalize
on this expertise and target becoming a manufacturing hub for A/B class vehicles. This
is already being leveraged by OEMs like Hyundai with Santro, Suzuki with Maruti
800/Alto and Tata Motors with Indica. Two wheeler exports are also expected to
become substantial in the coming years. Export of other vehicle categories will be
largely driven by strategies of individual companies. Incentivising the exports,
encouraging development of domestic competitiveness, establishing ‘Made-in-India’
brand are some of the initiatives required to promote International business.
4.12 Environment and Safety Regulations
Emission norms came into force with the Idle Emission Norms in 1984. Mass
Emission Norms were introduced in 1991 for petrol vehicles and in 1992 for diesel
vehicles. These norms have been progressively made stringent and India has followed
the European emission standards and test procedures. Environment concerns led to
India narrowing the gap with Euro norms at a rapid pace and currently BS-II or Euro II
equivalent norms are in force throughout the country and BS-III or Euro-III norms in
eleven cities. Two Wheelers which play the unique role of family vehicles in India
25
comply with stringent emission norms while at the same time satisfactorily meeting the
Indian customer demand for fuel efficiency. Idle emission norms applicable to in-use
vehicles have also been tightened. The need is for an appropriate in-use vehicle
management policy. Also, a long term emission roadmap needs to be developed as the
current roadmap is only up to 2010. Alternative fuels like Hydrogen and bio fuels need
to be promoted to ensure sustainability of the industry over the long term.
4.13 Human Resource Development
4.13.1 Employment is always a major factor when measuring the significance of any
economic activity. The automotive industry, on account of its backward and forward
linkages, is a significant generator of employment - both direct and indirect. While
direct employment is by way of workers engaged in the production of automobiles and
auto components, indirect employment is generated in feeder and supplier industries to
the automotive industry, such as the vehicle financing and insurance industry, vehicle
repair, service and maintenance outfits, automobile and auto component dealers and
retailers, vehicle drivers and cleaners, tyre industry, amongst others. Thus steps are
needed to ensure that demand – supply gap, both quantitative and qualitative, in terms
of human resources, does not arise.
4.13.2 The need of engineering and managerial manpower is being met by IIT and
IIM. The setting up of a specialized institute for industry will add to the competitiveness
of the Industry. The institute, besides developing as a repository of knowledge in the
field, will also take up market research and analysis within and outside the country. It
will also develop training modules and will disseminate them through ITIs and ATIs.
The Investment Commission has also identified this input as requirement for the
industry. The adoption of existing training institutes by OEMs and setting up of new
training institutes by them will be promoted.
26
Automotive Mission Plan

2006 - 2016
Recommended Interventions
27
5 Investment
5.1 Appropriate Tariff Policy
It has been observed world over that an appropriately designed tariff structure
attracts investors. High tariffs may restrict flow of trade but attract investment if
domestic market is big enough and growing.
Over the last few years India’s tariff policies and conditions of import of vehicles
have served the purpose of attracting investments. Industry is keen that the existing
tariff structure roadmap and conditions of import of vehicles are retained without any
modifications because of certain systemic deficiencies which make manufacturing less
cost competitive in India, compared to some of the neighboring countries like China,
Thailand, Indonesia, etc., and also that lowering of tariffs would not attract investment
from global OEMs. Here it is important to recognize the difference of the MFN rates of
tariff and the preferential rates of tariff. The MFN rates in India are currently equal or
lower than that of neighboring countries.
Commercial vehicles (Trucks and Buses falling under tariff headings 8702,
8704 and 8706), and MUVs falling under 8702 already have bound rates of 40 %. The
current tariff is 12.5 %. The tariff in advanced countries is higher than that of India, e.g.
tariff on trucks is 25% in USA and 22% in EU. The Government would examine the
tariff rate for commercial vehicles and MUVs in this perspective.
India is currently negotiating FTAs/PTAs with several regions and countries like
ASEAN / Thailand / Singapore / Malaysia, China / Korea / Japan / BIMSTEC / Bangkok
Agreement, SAFTA / Sri Lanka / Mauritius, MERCOSUR / Chile, SACU / Egypt / Gulf
Cooperation Council. While negotiating the agreements, care would be exercised in
deciding which tariff lines would be included.
In agreements such as SAFTA and PTAs with countries like Chile, GCC, etc.,
the attempt would be to include automotive tariff lines. At the same time for FTAs with
Thailand, BIMSTEC, ASEAN, China, Korea, Japan, etc., the industry has identified 84
automobile and engine product lines and auto-component lines for inclusion in the
negative list. Need to keep these 84 items in the negative list for FTAs with Thailand,
BIMSTEC, ASEAN, China, EU, Korea, Japan, etc., for which no duty concession
should be extended has been focused. In the case of the auto-component industry, the
negative list could vary depending on the country/trading block. Any trade negotiation
will take into account these sensitive items which are outside the purview of the
concessions.
A clear definition of Rules of Origin for FTAs/PTAs is to be attempted to put in

place in a manner to prevent:
Pass through imports from non-participating economies

Trade deflection, that may result from differential duty structures
28
As such it is felt that the automotive sector needs a robust definition of Rules of
Origin, which may be defined in terms of the following:
• Change of Custom tariff classification at the 4 digit level (from import to export)
PLUS
• Value Addition (Transaction Value Build Down method) Minimum at 50%,
(including value of sub-component import of parent assemblies) PLUS
• Minimum operation at country of origin (weld + paint + assembly) PLUS
• Non-qualifying processes: Packaging, Re-packaging Polishing, finishing, mere
assembly or disassembly, Inspection, Internal Transport, freight, anti-rust
applications, oiling etc., or a combination of the above
Rules of Origin should be certified only by Government Authorities of partner

countries only.
Unrestricted Import of Vehicles likely to have adverse impact on local

manufacturing, GDP and employment. Therefore these issues will be kept in forefront
while negotiating FTAs/RTAs with other countries.
Government will discourage import of used/ remanufactured vehicles and

components and remanufactured automotive products may not be treated like new.
B. Investment Support
In order to spur further growth, the Industry has requested that the automotive
industry may be brought under the purview of existing incentive structure (which exist
for other sectors of the economy or are available in some of the competing countries).
Some of the specific policies that Industry has requested for consideration includes:
Tax holiday for Automobile Industry for investment exceeding Rs.500 crore (as
given to power projects, firms engaged in exports, EOUs, infrastructure
projects, etc.)
One-stop clearance for FDI proposals in automotive sector including the local
clearances required for setting up manufacturing facilities
Tax deductions of 100 per cent of export profits.
Deduction of 30 per cent of net (total) income for 10 years for new industrial
undertakings.
Concession of Import duty on machinery for setting up of new plant or capacity
expansion
Deduction of 50 per cent on foreign exchange earnings by automotive
companies (like Construction companies, hotels, etc.)
State Government to be urged to offer the following:
Preferential allotment of land to automotive plants as is given to IT sector by
different State governments
Ensuring Continuous uninterrupted power supply as is done by many states
to some sectors
Captive Generation in the sector could be promoted, for instance, by
exemption of Electricity Duty for five years as is done for biotech industry in
some states.
29
The above issues will be appropriately taken up with the concerned authorities.
5.2 Infrastructure
Continued investment in infrastructure is essential. Infrastructure should keep

pace with growth in the manufacturing sector and trade. Some of the specific
requirements in this regard, that would be looked into, are given below:
A. For Road infrastructure:

Further road development to enhance movement – State Highways and
Interior village roads
Developing urban transportation system, Flyovers, etc with cohesive
integration of urban transport including Bus Rapid Transit systems,
infrastructure and land use policies
Arresting delays in completing planned road development
Ensuring need for quality road network and maintenance of existing roads
including a special emphasis on design for safety
Ensuring last mile connectivity between ports and auto hubs
Better connectivity and streamlining procedures for border trade
The requirement of roads by the automobile sector upto 2016 has been quantified
by the Government.
B. For Rail infrastructure:
Implementation of a comprehensive railway infrastructure development

program
o Developing a comprehensive blueprint for railway development on the
lines of NHAI/NHDP
o Implementing north-west freight rail corridor and last mile port
connectivity projects on priority
o Following up policy on private container movement and its speedy
implementation
C. For Port infrastructure:

Creation of specialized port infrastructure for handling vehicle exports. This
is crucial for India to emerge as a global automotive hub
Creation of three automobile export hubs near Mumbai, Chennai and
Kolkata, each equipped to handle output of 5 lakh vehicles annually by 2015
Earmark space for parking, vehicle repair at these ports to accommodate at
least 20,000 vehicles at a time
Implementation of parking projects (such as the proposed multi-level facility
at Chennai port) and last mile connectivity projects on priority
Expedite implementation of container terminals in line with the NMDP
Execution of port connectivity of the five automotive hubs with JNPT,
Mumbai, Kolkata and Chennai ports on priority
30
Creating/Expanding container handling facilities at JNPT, Mumbai, Kolkata

and Chennai ports which are critical for automotive exports and needs to be
addressed on priority
Development of CFS/ICD facilities in a regulated manner in line with the
traffic growth
Ensure appropriate port design (viz., berth length, equipment and draft) in
line with trends in container vessel design
Addressing procedural automation and standardization at all ports on
priority
D. For Power infrastructure:

Power and fuel account for about 6% of manufacturing cost and are important
factors in manufacturing competitiveness. Power cost in India seem to be on higher
side in comparison with other manufacturing locations. In addition, it is estimated that
the automobile industry would require an incremental 2100 MW in 2016 from the
current consumption requirement of 660 MW. The total power requirement of the auto-
component industry today is 1300 MW, which includes power purchased from the grid
as well as captive generation. The auto-component industry would require 4000 MW of
power from the grid supply. So, total power requirement of the automotive industry will
be around 6760 MW in 2015.
As envisaged in the Tariff Policy, the Tariff should progressively reflect the
cost of supply of electricity. The SERC would notify the roadmap which targets that by
the end of 2010-11, tariffs are within plus-minus 20 percent of the average cost of
supply. The roadmap will envisage a gradual reduction in cross subsidy. The Policy
also allows for captive generation to enable industries to access reliable, quality and
cost effective power. Electricity Act has completely decontrolled the setting up of
captive power plant. It is expected that distribution licensees would improve quality of
power to industrial consumers in order to retain them since these are high value
consumers. Further, to harness the economies of scale in the captive power plants
also, group captive plants are being encouraged. However, to enhance the grid supply,
capacity addition programme commensurate with the objective of eliminating all
shortages by 2012 is already in place. At present, projects of over 40500 MW at a cost
of Rs. 1,86,000 crore are under implementation. The capacity of National Grid is
proposed to be increased from present about 10,000 MW to 37,000 MW by 2012. This
would greatly facilitate open access in transmission.
Power Infrastructure would be improved to facilitate a faster growth of the

automotive sector both domestically and internationally. A special focus need to be
given to the automotive hubs.
31
E. Infrastructure for Testing, Certification and Homologation:
The world class infrastructure for Testing, Certification and Homologation will
be created under NATRIP in the three major auto hubs in the country. The first phase
of the project will be completed by the year 2008.
5.3 Expansion of Domestic Demand
5.3.1 In order to facilitate expansion of domestic market, following are the set of
initiatives to be followed by Industry and Government:
I. Industry will strive for acquisition of tools for faster product design and
validation (IT, rapid-proto, etc.) for enhancing the capability to create and
introduce products that are appropriate to the market needs at a quicker
pace and on a sustainable basis. Support will be extended to introduce
courses on automotive design. A styling centre could be a part of the
National Institute of Design.
II. Industry will work towards bridging the gaps on product quality, aesthetics,
features and performance with world class products. Government will
support Development Centres for Small and Medium Enterprise Suppliers
providing Training and Development, Consultancy, Project handling and
Business Development Support Services.
III. Industry will enhance the cost competitiveness on a continuous basis to

develop domestic market. Government would examine fiscal incentives/
concessions for innovation of ‘low cost’ products that are aimed at
consumers at the mass market like cost effective small goods carrier,
rugged low cost rural vehicle, small safe car, low cost two wheeler, etc.
IV. Government would consider rationalization and simplification of taxation

and documentation for interstate and inter city movement of vehicles and
goods.
V. An attempt would be made to encourage the Introduction of GST at the

earliest.
VI. Government of India has already set up committees to look into various
tax proposals and incentives. These committees would look into the
elimination of embedded taxes/levies that do not get off-set under VAT.
VII. In order to boost domestic demand and create volumes for industry,
government from time to time will devise suitable fiscal and promotion
policies to make India a hub for manufacture of small cars, MUVs, two
wheelers, tractors and auto components.
32
Government is aware of the potential of this sector and fiscal concessions have
been provided from time to time to give fillip to the auto industry. The tax anomalies/
problems as regards inverted duty structures, high input prices, excessive imbedded
taxes and levies are also being addressed by the government.
5.4 Encouraging Exports
A. In order to incentivise globalization and exports the following issues as demanded

by Industry will be taken up for examination :
(i) Maintain a three-tier tariff structure for raw materials, intermediate

products and finished products. In the short term, apply tariffs that would
counterbalance this disadvantage.
(ii) Proceed on internal reforms at an accelerated pace by bringing in full

country-wide VAT, and at the same time withdrawing all other central
and state taxes and levies on manufacturing.
(iii) Implement a comprehensive GST and reduction of tariffs on raw

materials, before further reduction in the automotive tariffs are done.
B. Creation of Special Auto-Component Parks (SAPs) is recommended for

promoting export in the auto component sector. The need for such Auto Component
Parks has assumed significance in the context of negotiation of Free Trade &
Multilateral Trade Agreements with various countries. Issues like extension of
Customs Duty exemption on inputs, exemption from sales tax & excise duty for
supplies to units in the SEZ will be suitably addressed.
C. In order to accommodate the existing units, Government would examine

creation of virtual SEZs in the automotive sector.
D. Government would consider revamping of export promotion schemes including

DEPB, EOU and EPCG schemes, which would be WTO compatible.
E. Currently, the EPCG Scheme permits import of capital goods at reduced

Customs Duty of 5% against an export obligation. With the gradual reduction of MFN
rates of duty to a peak of 12.5%, the duty exemption of 10% points under export
obligation lose attractiveness. This issue will be addressed.
F. Industry and the government will endeavor together yo explore new markets.
G. Government would encourage all automobile manufacturers based in India to

export.
H. Specific initiatives would be encouraged under the Market Access Initiative

(MAI) schemes.
33
I. The proposal to extend product and market focus schemes to the automobile
sector would be considered.
5.5 Support to Develop R&D
Competitiveness in manufacturing and technology development would be enhanced

through several initiatives:
5.5.1 Infrastructure Support

Government will ensure time bound implementation and support NATRIP to set up
Centres of Excellence in the following areas in the second phase to be completed
by 2011:
1. Noise Vibration & Heating (NVH) Centre (at Manesar)
2. Auto components (at Manesar)
3. Engine including power train (at ARAI, Pune)
4. Fatigue testing (at ARAI, Pune)
5. Material testing (at ARAI, Pune)
6. Automotive Infotronics (at Chennai)
7. Crash testing (at Chennai)
8. Testing Track (at Indore)
9. Vehicle dynamics (at Indore)
NATRIP can, therefore play a coordinating role for all activities requiring road data
collection; fatigue data etc., and make it accessible to the agencies carrying out
research. NATRIP could look into the following issues:
i. Mechanisms by which the Centres of Excellence could be promoted and

networked with industry.
ii. Creation of data base.
5.5.2 Government will encourage collaboration of Industry with research and

academic institutions like CSIR, IIT, and machine tool industry for the development of
appropriate technology and creation of IPR to meet more stringent regulations as well
as to develop relevant machine tools and equipment that improve manufacturing
processes and quality of the vehicles and components produced by the industry. The
interface with the Core Group on Automotive Research (CAR) would be strengthened.
5.5.3 At present, there are a number of institutions involved in the promotion of

research in the automobile sector. Besides CSIR and IIT, independent bodies such as
ARAI, Pune, and IIP are also pursuing research in this area. There is, therefore, a
need to synergize various initiatives in order to optimize output. Appropriate decision
will be taken on the following:
(i) Support to the development and acquisition of appropriate technology for

alternative fuels and hybrid engines, use of advanced materials, design and
styling. Creation of centres for automotive manufacturing excellence in four
IITs.
34
(ii) Encourage innovation for alternate cost effective materials and processes.
(iii) Support IT integration in manufacturing and development of automotive
infotronics; provide support infrastructure to facilitate development of
automotive infotronics
(iv) Creation of Advanced Research centre as identified by CAR, Centre for
Automotive Design and a Technical organisation to handle harmonization
and internalization of Indian regulations
5.5.4 For encouraging R&D, it is suggested that lab facilities in IITs could be
developed and modernized. Also, a focused/modular programme in IITs/IIMs
could also be initiated.
(i) Automotive Infotronics is a solution platform which draws from the

convergence of multiple functions and enables “information interaction”
for both in-vehicle and inter-vehicle applications. Historically, other
global attempts at capitalizing on Infotronics have failed for a variety of
reasons which include, among other factors, insufficiency of the value
proposition, a very high-cost of service delivery, and insufficient Public-
Private Partnership (PPP).
(ii) Research and work on Intelligent Transport System will be encouraged
preferably in public – private – industry partnership to build up an Indian
strategy to accelerate the development and usage of Intelligent-
Integrated-Safety Systems for increasing road safety in India.
5.5.5 Policy Thrust

(i) Encouragement will be given to fuel efficient vehicles appropriate for Indian
market. Conversion / adoption of vehicles run on alternative fuels will also be
encouraged.
(ii) Innovative and expedient R&D projects will be encouraged. In this regard,
option of consortium approach would be explored.
5.5.6 The National Hydrogen Energy Board under MNES has prepared National
Hydrogen Energy Roadmap and the Board would be playing the coordinating role
among various concerned agencies involved in R & D, development and
commercialization in the area of hydrogen energy. As regard evolving a strategy to
develop alternative fuel, fiscal incentives etc., the National Bio-fuel Development Board
under MNES will be requested to coordinate these aspects.
5.5.7 The hydrogen future does not have to start from scratch in India, as the CNG
infrastructure has already been laid in many cities and several thousand natural gas
vehicles are currently on road. Natural gas vehicles and fuelling infrastructure provide
hydrogen proponents a solid base on which an early introduction of hydrogen in
transport sector would be possible.
(i) The body building activity of commercial vehicles is an important safety

issue affecting day to day life of the people. For developing safe and
efficient body for commercial vehicles, there is very little need of a new
technology. It could be done by putting together the available
35
technology and materials and could be done by the Small and Medium
Industry. Initiatives such as this will be identified by the Government for
necessary support.
(ii) Ministry of Finance has constituted a committee to look into all the
issues regarding tax concessions for Research & Development. The
committee will take a holistic view on the present provisions in the fiscal
structure with regard to the tax concessions and incentives extended to
promote research. All issues related to incentives will be looked at by
this Committee. Some of the following incentives as requested by the
Industry will be referred to this Committee:
(a) 100% grant for fundamental research, 75% for pre-competitive

technology/application and 50% for product development.
(b) Promoting technology acquisition (for manufacturing) through

tax/ levy exemption. Zero taxes/levies on technology transfers
(products, features, alternate fuel, etc.).
(c) Increased weighted deduction u/s 35 (2AB) for expenditure

incurred on R&D from 150% to 200%. The scope of deduction
will be extended to all R&D expenditure whether incurred in-
house or externally. This facility could continue to be made
available in addition to any other incentive being offered.
(d) Provide excise duty concession for ‘Made in India’ products

(Currently excise duty concessions are available for a period of 3
years for products developed in India subject to the product
being designed and developed by a wholly Indian owned
company and the product being patented in any two countries
out of India. It is recommended that this facility be extended to all
companies, regardless of ownership and the condition of
patenting be modified to include vehicles and components
designed and developed by Indian companies with their own IPR
and which cannot be patented but can be registered under
design or copyright laws.
5.6 Long -Term Emission Roadmap
5.6.1 As is the trend worldwide, Indian automobile industry too is shaped by

environmental and safety imperatives. These norms have been progressively made
stringent and India has followed the European emission standards and test
procedures. Environmental concerns led to India narrowing the gap with Euro norms
at a rapid pace and currently BS-II or Euro II equivalent norms are in force throughout
the country and BS-III or Euro-III equivalent norms are applicable in 11 Metros: Delhi,
Mumbai, Chennai, Kolkata, Bangalore, Hyderabad, Ahmedabad, Pune, Surat, Kanpur
and Agra.
36
5.6.2 Future Directions in Emission Standards
Emission roadmap as given in the Committee for Auto Fuel Policy has
envisaged introduction of BS IV emission norms (Euro IV equivalent norm) in eleven
cities w.e.f 1st April 2010 and BS III emission norms in the rest of the country. It would
be possible to comply with this roadmap subject to the availability of the required fuel in
all retail outlets at least one year ahead of the introduction of emission norms. Future
emission standards require a clear and long-term roadmap required for smoother
transition to higher emission norms.
An underlying requirement, however, is that an in-depth analysis of projected

health benefits with improvement in ambient air quality, be undertaken to support
moving to stringent emission standards. It is also felt that so far as containment of the
SPM / RSPM in the vehicular emissions are concerned, further strategy in respect of
management of air quality, including vehicular pollution, would be based on the
apportionment study of vehicular and other pollution. The continuous monitoring of air
quality and source apportionment studies need further strengthening.
5.6.3 Industry has felt the need for setting up an organisation for developing an
Emission Roadmap based on Auto Oil programme. It would have to be a long-term
roadmap required for efficient functioning of the industry. Key guiding principles would
be:
(i) Minimum gap of four years between each successive stage of emission
norms will be built into the emission roadmap
(ii) Norms to be applicable for new models, one year after fuel is available
across the country.
(iii) For existing models, the new emission norms will come into effect one
year after emission norms for new models are introduced
(iv) New norms should be announced well in advance so that the auto
industry could gear up to technology requirements to meet the targets.
(v) It is preferable to have a single norm for emission across the country, if
the above parameters are met.
The above issues will be addressed.
5.7 Harmonization of Safety Standards and Road Safety
5.7.1 Indian safety standards for auto components have been in existence since the
late 1960s and were based on EEC/ISO/DIN prevalent at that time. The Central Motor
Vehicle Rules came into existence in 1989 whereby serious enforcement of regulations
came into force.
Post 2000, which has marked the start of the Safety decade, Indian regulations
have been based on ECE . Since 2000 concerted efforts are underway to technically
37
align standards with ECE. There is a detailed roadmap for safety standard till 2007 and
an outline has also been drawn till 2010.
5.7.2 In the era of globalization and free flow of goods and services, it is important
that to achieve harmonization with global regulations. UNECE WP 29 offers the
possibility for India to participate in the standards making process. India became a full
member of the 1998 agreement on global technical regulations in April, 2006 and has
initiated discussions on the pros and cons of India signing the 1958 agreement. This
would also require that Government and Industry study in detail the techno-
commercial implications, identify potential export areas and areas where India needs to
technologically upgrade.
5.7.3 At present, there are multiple organisations such as CMVR, AISC and BIS,
involved in the setting up of safety standards. There is, therefore, a need for setting up
an empowered body to coordinate and monitor the regulatory and harmonization
activities. The setting up of National Road Safety Board (NRSB) is under active
consideration by the Government. The NRSB will be responsible for the following:
(i) Road related measures - design, setting standards and audit.

(ii) Vehicle related measures - prescribing safety features in
consultation with the CMVR TSC., enforcing regulations in in-use
vehicles.
(iii) Road safety research – institutional linkages.
(iv) Comprehensive investigation and research of road traffic accidents
from the standpoint of human factors, the traffic environmental
factors and vehicular factors.
(v) Data collection, reporting, and analyses.
(vi) Traffic laws, management, and enforcement.
(vii) Road user behaviour strategies, capacity building, public
awareness and education.
(viii) Medical care and rehabilitation.
5.7.4 The government has already set up modern driving institutes for containing
road accidents. It has also been proposed that by the end of Eleventh Five-Year Plan
at least one driving school in each State and two schools in bigger States will be
established. Use of simulators has also been proposed under the scheme.
5.8 Incentivising Modernisation of Vehicle Fleet
5.8.1 The economic development has impacted the metropolitan cities more than the
rest of the country. The growth has also brought with it the unavoidable problems of
urbanization – and as people go about their lives at high speeds, air quality in general
and emissions from vehicles, in particular, have become issues of primary concern.
5.8.2 However, whilst the new vehicles are cleaner and meeting stringent emission
and safety requirements, the benefits are not reflected in the ambient air quality or in
reducing road accidents due to the presence of a large number of old and ill
38
maintained polluting vehicles. Industry has demanded that old vehicles of more than 15
years of age could be retired by providing certain incentives and concessions for
replacement through a single-window programme for modernisation of vehicle fleet.
The primary objective is to reduce pollution by accelerating normal fleet turnover so
that new, cleaner vehicles can be put into use sooner than would occur in the normal
course. Industry and government together will address this issue.
5.9 Inspection & Certification System
5.9.1 Based on several studies conducted in various parts of the world, it is widely
recognised that old vehicles are the gross polluters that can contribute up to 80% of the
pollution load in the major cities. The Hon’ble Supreme Court had therefore imposed a
drastic measure to phase out old vehicles from operating in Delhi.
However, Industry has submitted that even new vehicles with the state-of-the-art-
technologies, can deteriorate in service if not maintained properly. Industry therefore
has opined that it is important that the Central and State Governments, initiate
measures to bring all motor vehicles within the ambit of periodic fitness certification.
A study has revealed that for providing coverage of Inspection and Certification
Centres in entire country, an investment of Rs.10,000 crores will be required. So
privatizing the setting up of these centres is the only viable alternative. However, the
government is planning to set up one model centre in each State during the Eleventh
Five-Year Plan. The computerization of Pollution Under Check (PUC) centres is also
under active consideration.
5.10 Computerization of RTOs & Driver Licensing System
5.10.1 India is a fast growing economy and the Automotive Industry is playing a
leading role in this. The number of vehicles being manufactured and sold is increasing
every year and the projections show a double digit growth in future. Also, considering
the fact that India has one of the lowest penetrations of vehicles, especially personal
vehicles, the numbers are bound to increase year after year. This means that the
number of vehicles on roads will increase exponentially in the coming years.
With increasing numbers, the system of vehicle registration in the country needs to be
modernized. Ready and quick access to vehicle information on all India basis through
a centralized agency will be of immense help in traffic planning, town planning,
pollution control, tracking down vehicles stolen or used for crime, and greatly facilitate
collection of motor vehicle taxes and classification of vehicles in use.
The present system of vehicle registration is characterized by:
(i) Decentralised nature of vehicle registration through around 760 Regional

Transport Officers (RTOs)
(ii) Different systems and standards for compilation of vehicle registration across
the country. The existing IT based systems across States and UTs have been
developed by different agencies/vendors. Presently a little more than one-sixth
(about 125 RTOs) of the total 760 RTOs in the country has been computerized.
39
(iii) No centralized data warehouse/agency on vehicle registration and related

parameters. This makes timely access and retrieval of information a daunting
task.
(iv) In case of any issue with respect to safety, if the manufacturers want to recall
vehicles, they can not benefit much from these decentralized data
(computerized or in manual files).
5.10.2. It may be prudent to consider a centralized database of registration and a

centrally computerized IT system for the same. This can happen with the existing
concept of regional registration offices. With such centralized data base both centre
and state agencies can benefit from sharing of authentic information in a timely
manner.
5.10.3 Major benefit of the centralized registration details availability (owner, address,
phone number and other details) will be the ability to recall exact and all vehicles by the
manufacturers in an event of product problem, especially pertaining to safety of the
vehicle owner as well as other road users. Besides safety, other benefits of such a
centralized database can be:
(i) Town Planning and Environment Assurance (Pollution control)

(ii) Crime control- Vehicle-in-crime Tracking
(iii) Traffic Engineering and Road Planning
(iv) Stolen Vehicle Tracking
(v) Enforcement of other laws introduced from time to time, e.g. ELV norms
5.10.4 The Government has already prescribed common minimum specification for
smart card based registration certificate throughout the country. The software has been
made available to the State Governments for speedy implementation.
5.11 Ensuring Availability of Human Resource
5.11.1 The automotive industry is expected to require an additional 25 million

workforce by 2016 in both manufacturing and downstream and upstream activities.
Based on the current pattern of employment it is estimated that automotive industry
would require the following:
Management / General : 28% ( 7.0 million)

Skilled Worker : 62% (15.5 million)
Unskilled Worker : 10% ( 2.5 million)
5.11.2 Ensuring availability of trained manpower will be of critical importance. The

industry has suggested that initiatives for human resource development are needed at
two levels. At first, existing labour laws need to be rationalized. This needs to be
supplemented by creating adequate infrastructure to ensure availability of trained
manpower.
5.11.3 On the issue of Labour Law Reforms Industry has submitted that :
40
(i) Labour laws adversely impact competitiveness despite being a low labour cost
economy.
(ii) There are 45 Central Acts and 16 associated rules that deal directly with labour.
There are others Acts that indirectly deal with labour, like the Boilers Act (1923),
the Collection of Statistics Act (1953), the Dangerous Machines (Regulations)
Act (1983) and Emigration Act (1983).There are in total 154 labour laws.
(iii) Some of the recommendations made by the Industry are as follow:

(a) Factories Act, 1948: The State Government using its powers under
Section 65(2) of the Factories Act may grant exemption to all EOUs/
SEZs from all provisions of Section 51, 52, 54 and 56 of the Act. Thus,
the working hours should be increased from 48 to 60 per week
(Section 51), from 9 to 11 per day (Section 54) and spread over from
10.5 to 13.0 hours per day (Section 56). Such exemptions will be a
progressive step in enhancing the competitiveness of the industry.
(b) The Contract Labour (Regulation and abolition) Act, 1970: Fixed term
contractual employment may be permitted in relation to the business
needs. Contract labour will be allowed in core areas for temporary
periods to meet the market demand. Fixed term employment of
contracts could eventually be allowed in core activities.
(c) The provision 9-A in the Industrial Disputes Act requires a stringent
process for Item number 10 and 11. Some flexibility will be required to
recruit workforce as per the demand fluctuation in the market.
(d) The Second National Labour Commission recommendation that prior
permission should not be required in respect of lay-off and
retrenchment in an establishment of any employment size would be
examined for its implementation in auto sector. The prior permission
required in case of a unit employing more than 100 employees for
closure of the establishment may be examined to raise it to 300.
(e) A Supplementary Unemployment Benefits (SUB) fund need to be
encouraged to be created by the companies. This fund could be used
to provide compensation to laid-off workers.
These issues will be taken up at appropriate fora.
5.11.4 Manpower Training
Availability of trained manpower would not only aid in the growth of the sector but
also facilitate in meeting employment goals. Hence adequate steps should be taken to
ensure availability of trained manpower.
In this context, Industry has proposed that A National Automotive Institute would
be set up, which would coordinate training in disciplines related to the automotive
sector. The institute would prepare courses and modules on training for development
of trained manpower. The courses and modules could be implemented by ITIs and
41
ATIs. Creation of new Automotive Training Institute (ATI) for providing ‘Mechanics’
training to all segments of society will be looked at. It would also work as repository of
data and knowledge to do business forecast in country and globally and will also help
and assist in policy formulation.
There is a need to train the management personnel in the area of “Manufacturing

Management”. This would involve education and training on subjects like SQC, TPM,
TQM, Six-Sigma, Lean Manufacturing, Breakthrough Management etc. IIT and IIMs
would be requested to institute a programme on “Manufacturing Management.” In the
short-term, all Universities and Engineering Colleges, including those at the State level
would be encouraged to formulate a Training Programme, in consultation with the
leading industries in their region on Quality Management and general development for
managerial staff. In due course, this programme should become a full-fledged subject
in their curriculum for engineers in branches like Mechanical Engineering, Industrial
Production etc. A training programme/course in manufacturing management (titled
‘Programme for Manufacturing Excellence’) would be formulated. Beside the above,
following steps have been requested by the Industry to facilitate availability of required
trained manpower:-
(i) Keeping in view the demand structure for styling and engineering design centres,
it is suggested that the styling centre may be a part of National Institute of
Design, Ahmedabad (NID). NATRIP may act as the nodal centre for providing
data base for engineering design.
(ii) Education and training to orient R&D to meet customer’s demand.
(iii) Ensure flexibility to R&D personnel employed by National Labs, Universities
etc. to work in industry for a period of 3-4 years on deputation/sabbatical
(iv) Electronics, megatronics and software capabilities for automotive engineers in
IITs will be developed.
(v) Set up facilities for E-learning and E-training to reach wider audience and be
able to train more persons required to meet the demand.
(vi) Encouraging OEMs to adopt existing training institutes or to set up new
institutes for training.
42
Working Group Chairmen
Chairman Subject
Mr Ravi Kant Demand Creation, Brand Building and

Managing Director Infrastructure
Tata Motors
Dr Pawan Goenka Competitiveness in Manufacturing &

President (Automotive) Technology
Mahindra & Mahindra
Mr Deep Kapuria International Business (Exports)

Chairman & Managing Director, Hi-Tech Gears
Dr Surinder Kapur Human Resources Development

Chairman, Sona Group
Mr Jagdish Khattar Environment & Safety

Managing Director, Maruti Udyog
43
List of Abbreviations Used:
1. ACMA – Automotive Component Manufacturers Association

2. AISC – Automotive Industries Standards Committee
3. ASEAN – Association of South East Asian Nations
4. ATI – Automotive Training Institute
5. BIMSTEC – Bay of Bengal Initiative for Multi Sectoral Technical and Economic
Cooperation
6. BIS – Bureau of Indian Standards
7. BS – Bharat Stage
8. CAGR – Compounded Annual Growth Rate
9. CAR – Core group on Automotive R&D
10. CBDT – Central Board of Direct Taxes
11. CDM - Clean Development Mechanism
12. CFS – Container Freight Station
13. CMVR – Central Motor Vehicle Rules
14. CNG – Compressed Natural Gas
15. COP – Conformity of Production
16. CSIR – Council for Scientific and Industrial Research
17. CV - Commercial Vehicle
18. DEPB – Duty Entitlement Pass Book Scheme
19. DG – Diesel Generator
20. DIN - Deutsches Institut für Normung
21. ECE – Economic Commission for Europe
22. EEC - European Economic Community
23. ELV – End of Life Vehicle
24. EOU – Export Oriented Unit
25. EPCG – Export Promotion Capital Goods Scheme
26. FDI – Foreign Direct Investment
27. FTA – Free Trade Agreement
28. GCC – Gulf Co-operation Council
29. GDP – Gross Domestic Product
30. GST – Goods & Service Tax
31. I&C – Inspection & Certification
32. ICD – Internal Container Depot
33. ICRA – Indian Credit Rating Agency
34. IIM – Indian Institute of Management
35. IIT – Indian Institute of Technology
36. iMaCS – ICRA Management Consulting Services
37. IPR – Intellectual Property Rights
38. ISO - International Organisation for Standardization
39. IT – Information Technology
40. ITI – Industrial Training Institute
41. JIPM- Japan Institute of Productivity Management
42. JNPT – Jawaharlal Nehru Port Trust
43. LCC – Low Cost Countries
44. LCV – Light Commercial Vehicle
45. M&HCV – Medium & Heavy Commercial Vehicle
44
46. MFN – Most Favoured Nation

47. MNC – Multi National Corporation
48. MNES – Ministry of Non-conventional Energy Sources
49. MoHI & PE – Ministry of Heavy Industries & Public Enterprises
50. MUV – Multi Utility Vehicle
51. MW – Mega Watt
52. NAII – National Automotive Infotronics Initiative
53. NATRIP – National Automotive Testing and R&D Implementation Project
54. NGO – Non-Governmental Organisation
55. NHAI – National Highway Authority of India
56. NHDP – National Highway Development Project
57. NHEB – National Hydrogen Energy Board
58. NID – National Institute of Design
59. NMDP – National Maritime Development Project
60. NRSB – National Road Safety Board
61. OEM – Original Equipment Manufacturer
62. PMP - Phased Manufacturing Programme
63. PPP – Public Private Partnership
64. PTA – Preferential Trade Agreement
65. QR – Quantitative Restriction
66. R&D – Research & Development
67. RTA – Regional Trade Agreement
68. SAARC – South Asian Association for Regional Cooperation
69. SACU – Southern African Customs Union
70. SAFTA – South Asia Free Trade Agreement
71. SAP – Special Auto component Parks
72. SERC – State Electricity Regulatory Commission
73. SEZ – Special Economic Zones
74. SIAM – Society Of Indian Automobile Manufacturers
75. SIDBI – Small Industries Development Bank of India
76. SION – Standard Input Output Norms
77. SME – Small and Medium Enterprises
78. SQC – Statistical Quality Control
79. SUB – Supplementary Unemployment Benefit Fund
80. SUV – Sports Utility Vehicle
81. TA – Type Approval
82. TPM – Total Productivity Management
83. TQM – Total Quality Management
84. UNECE - United Nations Economic Commission for Europe
85. USD – US Dollars
86. VAT – Value Added Tax
45
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Draft Automotive Mission Plan 2006-2016

Draft Automotive Mission Plan

Documentation of Inputs for

Ministry of Heavy Industries & Public Enterprises

S.No Chapter Page No.

1 Auto Industry : A World Overview 3

2 Indian Automotive Industry : An Overview 5

3 The Automotive Mission Plan 11

4 Growth Trends in Automotive Industry 13

7 Working Groups Details 43

4. The concept of attaining competitiveness on the basis of cheap and abundant

6. It is also felt that a general improvement in availability of trained manpower and

9. The Automotive Mission Plan (AMP) aims at doubling the contribution of

1. Auto Industry: A World Overview

Year World Vehicle Percentage

2. Indian Automotive Industry: An overview

Installed Capacity in Different Segments in nos.

2.4 Export of Vehicles: Automotive industry of India is now finding increasing

Export (in nos.)

Category 2000-01 2001-02 2002-03 2003-04 2004-05 2005-06

Auto component Industry: An overview:

2.9 Indian auto component manufacturing, currently constrained by lack of large

2.12 Major Challenges:

2.13 Recent initiatives of the Government

(ii) As a result of constant persuasion by the Department of Heavy Industry,

(iii) National Automotive Testing and R&D Infrastructure Project (NATRIP):

(a) A full-fledged testing, certification and homologation centre within the

3. The Automotive Mission Plan:

3.5 Implementing AMP 2006-2016 would need an incremental investment in the

3.6 Currently the automotive industry employs 200,000 persons in vehicle

Automotive Mission Plan 2006 - 2016

Growth Trends in Automotive Industry

4 Evolution of Indian Automotive Industry

Starting in 2000, several landmark policy changes like removal of quantitative

In the 1980s, encouraged by the establishment of many Japanese OEMs in the

The Phased Manufacturing Programme (PMP) introduced in Indian automotive

As a result of successful localization of these components, Vehicle

Currently the Auto component Industry manufactures a wide range of products

Currently the Auto component Industry manufactures a wide range of products

4.3 Size of the Indian Automotive Industry

4.4 Growth Drivers

4.4.2 In the commercial vehicle segment, increased investment in road infrastructure

4.5 Export Trends

4.6 Growth potential of Indian Automotive Industry

4.6.5 The automotive industry also promises significant employment opportunities.

4.7 Areas to Focus

The future challenge for Indian automobile industry would be to develop a

4.8 Competitiveness in manufacturing

4.8.2 As observed by the National Manufacturing Competitiveness Council in its

4.8.4 The National Manufacturing Competitiveness Commission’s National

4.8.8 In a study commissioned by SIAM, ICRA Advisory Services evaluated the

(i) Creating world class physical infrastructure – road networks, ports,

4.8.9 A cost comparison study between Indian and Chinese automotive

4.9 Prescriptions for Industry in the National Manufacturing strategy

4.10 Demand creation, brand building and infrastructure

4.11 International Business (Exports)

4.12 Environment and Safety Regulations

4.13 Human Resource Development

Automotive Mission Plan

5.1 Appropriate Tariff Policy

A clear definition of Rules of Origin for FTAs/PTAs is to be attempted to put in

Pass through imports from non-participating economies

Rules of Origin should be certified only by Government Authorities of partner